For those not aware, Tether is a "stable coin" that issues tokens that supposedly represent dollars and can be used as a medium of exchange. However, it's widely suspected that Tether is unbacked and printing fake dollars and even Tether itself has admitted that at least 26% of their tokens have no backing [1]. Tether has never been audited so we have no clue how much of it is actually backed and how much of it is fake.
This is extremely problematic because Tether is currently printing around $500 million per day and is a source of a significant amount of buy pressure in the market. Tether is used on almost every exchange and is the vast majority of Bitcoin buy orders so Tether can be used to artificially pump the price of Bitcoin quite effectively.
Ray points out Tether as a risk to Bitcoin's value, but I don't think he does an adequate job explaining the risk. Tether isn't a small component of the Bitcoin ecosystem. It's at the heart of Bitcoin with it being the primary currency used to buy Bitcoin with at most exchanges. Most of the buy volume is with Tether and that $500 million per day is huge.
Regardless of what one thinks about the value of Bitcoin, it's irrational to invest while $500 million of fake dollars are being pumped in every day. Once that artificial $500 million buy pressure is removed, the market will face an existential risk. Who knows what the real price of Bitcoin would be without all that fake money?
https://davidgerard.co.uk/blockchain/2021/02/03/tether-print... is a good article for additional context on Tether.
1. https://www.coindesk.com/tether-lawyer-confirms-stablecoin-7...
https://medium.com/@nic__carter/assessing-bitcoins-liquidity...
[0] https://wallet.tether.to/transparency [1] https://mobile.twitter.com/bitcoinlawyer/status/135164200602... [2] https://modernconsensus.com/cryptocurrencies/tether/feds-jus...
Here is a study arguing the opposite - https://voxeu.org/article/stable-coins-dont-inflate-crypto-m...
Additionally, if that bank goes bankrupt, the money is not secured.
If people are thinking of buying and selling BTC, should they start with another crypto currency until the Tether issue is resolved?
If you have an IOU from the US government for $100 it's worth about $99 on the open market.
If you have an IOU from a highly rated US company (e.g. Ford) for $100 you'd expect it to be worth about $94.
Yet we're somehow supposed to believe than an equivalent IOU from tether is worth more?!
Oh and the US Government and Ford will probably pay you some form of interest if you hold it long enough...
It simply doesn't add up!
If the market believes Tether is not backed by real currency, shouldn't it be trading at a discount to USD?
What's the opposite of FUD, when people with a massive financial stake in something do nothing but tell everyone everything is great all the time, and never acknowledge any issues?
That's important to note, but where does he argue that the central and most important claim - i.e., that Tether isn't fully backed and is therefore liable to collapse like a house of cards - is false?
What other asset has this situation where the reason for the movement of its price is so obfuscated?
If people realized that bitcoin's -average- transaction fee is around $25 USD because it is restricted (for no technical reason) to a few transactions per second (less throughput than 240p youtube videos) they would at least move on to other cryptocurrencies.
If people realized that a sudden drop in price will mean a sudden drop in mining power, which will mean a sudden drop in blocks being generated, which will mean a sudden drop in throughput, they might be even more eager to get out of it. Since transactions are already so extremely limited purely by choice of the people that took it over, sudden drops in price mean less utility while in practice sudden rises in price lead to lots of transactions for speculation, which also prices out any utility.
One transaction is now 4x the hard drive cost to store the entire chain (and users don't even need to store the chain at all).
Lower prices have always led to less transaction volume which has always made it cheaper and easier to get your own transaction confirmed.
"don't invest in something you don't understand", can I ask that you don't spread FUD about something you don't understand?
> a sudden drop in price will mean a sudden drop in mining power, which will mean a sudden drop in blocks being generated, which will mean a sudden drop in throughput
Over time (and blocks) the proof of work difficulty adjusts, but that isn't what I was talking about, which is why I said "sudden" over and over.
It takes the generation of blocks to adjust the proof of work difficulty and if the price goes down, miners shut off and the blocks needed to adjust the proof of work will get generated more slowly. Less blocks on average means the adjustment skews into the future as the throughput goes down.
Two factors that go _against_ a death spiral is that transactions typically go down when the price goes down, and when the transaction throughput is low, people with actual balances on the chain can't get their btc off of it.
When the price goes up and mining power increases (sooner or later) this isn't a problem, because faster blocks aren't a problem - they just make calibrating back down to a 10 minute happen quicker.
> "don't invest in something you don't understand", can I ask that you don't spread FUD about something you don't understand?
Easy there, you can always ask questions instead of making bold assumptions like this.
I agree with your overall argument but as I understand it, this is false. If the mining power of the whole network drops, the proof of work will become simpler so as to have a roughly constant block throughput. Or am I missing something here ?
The problem was how the difficulty was decided -- it looked at the last N blocks that were successfully mined to decide whether it needed to up or down the difficulty. If you suddenly lost 90% of your mining capacity, it would only adjust the difficulty after several more blocks were mined, each of which would take ~100 minutes instead of the usual ~10. The system would eventually right itself, but it wasn't fast.
I can't recall if this ever became a problem in practice, or whether there was a code change to make it resolve faster.
compared to the endless money printing done by the fed that still seems like a bargain.
https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
I really have no idea why, it seems sketchy.
The point is that 1 dollar buys the exact same amount of bitcoin as 1 tether.
Stop presenting FUD if you don't yourself want to back it.
So if you were a big company, let's say Tesla, which wanted to buy a lot of bitcoin, let's say 1.5 bil, would that mean that you first need to convert that 1.5 bil to Tether, since that's the most liquid denomination of BTC?
Could it be that some of those "fake" $500 mil daily Tethers were actually really backed by Tesla dollars?
When you do that kind of buying, you need to go to the most liquid exchange (Binance), and that uses Tether.
Every day that goes by it's becoming more clear that Dalio's "genius" was nothing more than a product of being in the right-place-right-time of an extraordinary 20+ year bond run and Chinese money connections.
Scratch that, US and UK banks, for example, now have 0% reserve requirements.
Here is the documentation that explains the capital requirements for a regulated entity (not just banks, but including banks) in the UK
https://www.handbook.fca.org.uk/handbook/glossary/G1567.html
Are you claiming Tether has other assets that are not being counted?
You will never learn anything new about it, only the same stories:
1. It's a disastrous waste of energy resources.
2. HODLers like to compare it with gold and use it as a store of value. Because of this, they will constantly make a noise about it to raise its price.
3. No one will ever use it as an ordinary currency to buy simple things. Oh, you could buy Tesla with it, but you won't do that, because bitcoin holders think it will only grow.
2. https://www.youtube.com/watch?v=xLYYh4aPXAM
3. Bitcoin Mining will make investments in renewable energy a lot less riskier as you can scale up as much as you want and always have a buyer. This drives out fossil fuel miners
4. Once bitcoins true price has been found, holders will spend to consume as much as they need/want to. Just like every other currency, except without the inherent need to spend(fixed issuance)
Whether or not it's a "waste", it's certainly a massive amount. More than all of Argentina or Netherlands[0], as was posted here on HN recently. As of 2020, every single Bitcoin transaction uses the equivalent of 15 full charges of a Tesla car battery[1].
Also: You don't decide whether I (or others) decide what's a waste of energy or not.
[0]: https://cbeci.org/cbeci/comparisons [1]: https://news.ycombinator.com/item?id=26090317
Short rant:
The current settlement system is layers up on layers of legacy systems. How do international settlements exactly work? How long do they take? Where does money come from? Why should flawed metrics and corruptable humans decide when to issue currency?
Bitcoin follows a simple set of rules that everyone can understand in days of intense learning. An average developer can audit the code and can verify these rules. It‘s a simple and beautiful system that HN just loves to hate, for whatever reason.
I don't know about you, but I see people escaping tyranny in monetary policy as less wasteful than US standby devices.
The characteristics of a great store of value are different than that of a great currency - it seems naive to me to think that Bitcoin would ever act like a fiat currency that way.
That's besides the point that gold is practically unusable as a currency for convenience reasons (divisibility, verification, storage, transportation).
A great currency is a currency that preserves your value over time, as currency is what you earn for spending your time and skill. You shouldn't be forced to take a risk to maintain your wealth. Today it's risky not to divest your fiat.
> Make sure, of course, that you always make specific people feel bad about mistakes: “Instead of the passive generalization or the royal ‘we,’ attribute specific actions to specific people: ‘Harry didn’t handle this well.’” And make sure everyone knows it: “Use ‘public hangings’ to deter bad behavior,” he says, by which he means making sure to belittle (I’m sorry, accurately explain the failings of) employees in front of their coworkers so that the lesson is learned widely.
[0]: https://www.currentaffairs.org/2018/06/how-to-make-everyone-...
If your team and your coach aren't a safe space to accurately explore your gaps in pursuit of shoring them up, both with exercises for you and with adjustments to the team play, why train pro at all? Anything less is literal amateur hour.
No professional athlete can afford to think "accurately explore the failings of" equates to "belittle", and no serious player would expect the coach to only give post- or even mid-game feedback behind closed doors.
Without that team discussion you're going to have a really difficult time knowing what to work on in yourself to be better, and your team is going to have a hard time knowing the watch-out-fors to collaborate on guard-railing your play.
(Not incidentally, basketball and baseball are near real-time stats driven. So is BW performance culture. We understand this for improving software by running it under a debugger or tools like New Relic, why not instrument your own processes?)
If you don't feel like opting-in to acknowledging and working on gaps as a team owning the outcomes, don't sign up somewhere that does.
If you do feel like opting-in, seek out teams and managers that believe in reality-based root cause feedback loops -- great retros drive greater forward looking results, for the product, the team, and you.
I'm glad you didn't have a bad time working there. Yes, of course you can disagree with NR's conclusions, yet the article is mainly a review of Dalio's book alongside some quotes from employees. This "public hangings" statement is picked straight out of his Principles book. Is any of that source material being misrepresented or unfair in your opinion, having worked there?
I'm curious about the thing with the "overseers", "captains", "dots" and "baseball cards". Is that really a thing or not?
> Each day, employees are tested and graded on their knowledge of the Principles. They walk around with iPads loaded with the rules and an interactive rating system called “dots” to evaluate peers and supervisors. The ratings feed into each employee’s permanent record, called the “baseball card.”
I'm reading through Principles right now and while you bring up valid points that make people uncomfortable, I think given their continued success it's apparent that Bridgewater has been better off for it. I've unconsciously used some of the basics in my career, like being forward about criticism to my superiors and direct reports, and after a short period of discomfort I've always found the relationship better.
There was a test on the principles as part of the new hire orientation, but it didn't really matter how you did on it, and my manager didn't seem to place any weight on it, others might've been different. It is definitely not a daily thing that you're graded on. Dots is just an app you use to give feedback to people on how they are applying the principles, but it's mostly just used to rate if people did something well or poorly. Like if you shipped a feature on time or gave a good presentation on something you'd get a lot of positive dots and if you broke something in production you'd get a bunch of negative dots.
Other people at the company can see the feedback you got, that's part of what the baseball card is. It's really just a more transparent form of the evaluation system any company would have.
My criticism of the principles is that there are so many of them and some of them are contradictory (e.g. fight every battle vs choose your battles are two I remember) that people mostly just use them to justify what they were going to do anyways.
On the positive side, Ray and the other senior people really do care about the employees and Ray in particular is very generous towards them.
However should we change our mind and instead start thinking some other cryptocurrency or maybe just a registration in some more or less distributed database is gold. Then that can become gold.
Or something like that?
Or maybe only gold is gold because it has been like that for a thousand years and throughout multiple empires and wars.
This is the first time I have felt that Bitcoin has some value: as a commodity that wealthy people put their wealth into when they have nothing better to do with it. People are not buying gold because they ever plan to use the gold.
Ray Dalio invested heavily into gold, and has since repeatedly press released that he had done so. It's the same characteristics as an MLM scheme.
Edit to add: qualitative comments rebutting my argument points would be greatly appreciated.
In this article, Dalia has the commodity view towards money, gold, and by extension bitcoin. In this paradigm, cryptocurrencies are collectibles.
One great use case is as an escrow.
I'm dubious of the store of value use case. Bitcoin is just a currency. Whereas gold bullion is minted into coins, electricity is minted into bitcoins. The cost of production is only loosely correlated to the market (strike) price.
What gives money its value? A MMT-like theory is that fiat currencies have their well defined value because government accepts them to pay taxes.
I'm a bit more cynical. I think money, fiat currencies like the USA dollar, has it's value established at the point of a gun. That dollar represents the military might of the USA and that government's insistence that you agree.
What backs the value of bitcoin? Anything tangible? Nope. Just everyone's shared belief. Per Random Walk Down Wall Street, it's just castles in the sky. And like all bubbles, that belief system pops in a panic.
For rich people like Dalio, collectibles like gold, art, and real estate are probably a good idea. After the crash, someone somewhere will probably accept those collectibles, those assets, for payment or collateral.
In any scenario where gold or art will be used as collateral, who's gonna accept bitcoin?
[0] https://www.economist.com/leaders/2021/01/09/what-explains-b...
However profitable, useful, or entertaining one might find that as a fringe commodity, it's an atrocious basis for an economic system that would ultimately lead to depression, then war, just as money tied to the gold standard did a hundred years ago.
Money was detached from the gold standard almost everywhere in the world for excellent reasons. Recreating money with properties similar to gold would be a step backwards.
I'm also confused about how people think and talk about the market cap. My sense is that the total economic value of bitcoin holders can't be much more than what they have collectively put in as dollars minus what was spent on mining, which is only a fraction of the market cap. If it's more you get a weird kind of inflation where it's not a central bank printing money, but where "value" seems to spring out of thin air just because the masses are attracted to bitcoin (with FOMO as the main reason).
I can't quite wrap my head around all of this. I've been interested in blockchain for quite a while and have been keeping up with what's going on, but many things about the cryptocurrency market just don't make fundamental sense to me. (Another example - Ether basically being the denomination for transaction prices on the Ethereum network, meaning the higher it's priced, the less useful the network is, which seems like a conflict.)
I'll keep paying attention and see if I can learn a thing or two about real world (irrational?) economics.
This is really easy to understand from first principles. If the total value of the world increases and there is only a fixed amount of either gold or bitcoin, or any finite thing to represent it, it's obvious that whoever has that asset today has to do nothing for it to grow. Just sit on it indefinitely and people will give you more value for the same amount.
On the other hand if the value of the world is represented in USD and the feds keep print more money, you can’t just sit on the money you have today and expect it to be worth more. You have to put it back in the value creation system for it to grow in value.
Bitcoin and gold suck at representing value. Fiat currency is much better because you can print more money to keep up with the world's total value.
Another possible lever is government control over regulated financial institutions.
They are a giant waste of electricity.
Even renewably-sourced electricity is in finite supply, even near large hydro-electric dams or geo-thermal plants, and thus this deprives the world of metal smelting or other energy-intensive activities we urgently NEED to adapt to electrically-driven processes.
I should expect to see intelligent folk like those in tech to understand the multiple environmental crises we are in, and how bitcoin and it's ilk are not aiding resolution of this in any way, and indeed can be shown to be hampering efforts.
Wasted CPU cycles have environmental costs. Proof of work is a giant waste of electricity that could be better spent.
Introduce a cryptocurrency that actually incentivizes goodness through it's creation instead of further destruction and spare me the hypotheticals. As currently implemented= BAD FOR PLANET EARTH and a diversion of resources to literal waste.
Imaginary money burning real joules of energy
2 hits, both "regulatory environment"
I then proceeded to close the browser tab.
It's incredibility energy intensive and as the world works towards reducing the our impact on the climate, it's possible energy can get too expensive to operate a bitcoin farm mining farm. Or governments decide that using precious electricity production on hashing blocks is the same as other forms of pollution and regulates it away.
Any changes to network hash power, bitcoin prices and energy cost may cause miners to scale down operations and lower overall network hash. Then at a certain network hash rate it will become profitable again.
Is energy use a concern when you're primarily dealing with solar/hydro power?
- "limited supply they still wouldn’t be worth” I think limited supply is one of the most attractive things of Bitcoin :)
I did an analysis based on the same premise (Bitcoin competes with gold) and came to basically the same conclusion.
Dalio's writings about how the "All Weather" fund works are based on a premise a lot like the "Permanent Portfolio" advocated by Libertarian presidential candidate Harry Browne but Dalio took out the "gold" component and replaced it with "treasury inflation protected securities."
Circa 2000 I bought a lot of TIPS and they did very well despite there being little inflation. Dropping interest rates had something to do with it, but I still don't understand exactly why they did so well.
(My stockbroker fired me as a client because I went to a presentation and asked why I needed the product they were selling when I bonds were yielding so well and had all the tax benefits they had)
I don't know how TIPS will do now, but I am sure that getting into TIPS at the right time is part of why Dalio is a legend. Maybe these days he thinks gold is better than TIPS.
fyi the "all weather" portfolio's name is stupid given it's mostly backward looking and benefited from a commodities supercycle and rates dropping from QE. With the 10yr at 1% putting 30-40% of your portfolio in long dated treasuries is insane. Let's use the TLT etf as an example (20 yr treasury). It has a duration of 19 years. That means for every 1% increase increase in rates, the value of your bonds will go down 19%....yikes. Let's say you are going to buy individual bonds and hold to maturity. Ok, you are protected from that price drop assuming you don't sell, but you've also just made a 20 year bet you don't think interest rates will go higher from here.
That's interesting the broker didn't want to sell any other products to you.
> I don't know how TIPS will do now, but I am sure that getting into TIPS at the right time is part of why Dalio is a legend. Maybe these days he thinks gold is better than TIPS.
I think Buffett has also recommended TIPS.
Is there any other asset we can make this statement about? That supply is 100% known and cannot change in future?
[0] https://www.coindesk.com/10m-bitcoins-havent-moved-in-more-t...
Let me know if I’m wrong
It just creates an additional coin and it already has happened dozen of times (Bitcoin Gold, Bitcoin SV, Bitcoin ABC, Bitcoin Cash, ...). Some of them claim to be "the real Bitcoin" but market consensus seems to disagree: All of them are either dead or valued at <1/100 of Bitcoin.
As long as you run your own node you define for yourself what Bitcoin is.
Changing the fixed cap would break consensus, so it can only be done with an overwhelming majority not only of miners, but also users, exchanges and merchants. (otherwise miners would mine an empty chain).
Good to emulate.
Who challenges dalio on his submerged assumption that a gold-like store of value is really of any value to rank and file investors compared to the stock, bond and real estate markets?
He should be equally criticized for obsessing about gold as for being attracted to Bitcoin.
This is likely a way to assert that the site is not intended to market Bridgewater’s investment products to non-accredited investors. I don’t know if the SEC explicitly requires a click-wrap warning but it’s generally an area that firms want to avoid toeing the line on.
We are currently living in a world in which the rich get richer (bailouts, stocks, real estate, efficiency gains) while the poor get poorer (cash only, inflation, wage stagnation). Every $1 that trickles down from the top 1% is returned to them as $2 freshly printed from the central banks. Wealth and income inequality continue to rise as a result.
Bitcoin has a fixed supply, and now you can't bailout the riches anymore while having the poor pay the bill in the future via inflation.
Do we accept that inflation causes wealth centralisation? Of course not, but until Bitcoin there wasn't anything we could do about it.
I'd love it if your comment could raise the same point as you did, but also include examples of the poor sentences and how it could be better. Then at least we could have learned something. Instead you went for the shallow dismissal. Boring.
In fact, I saw none of your suggested horribleness. Okay, I immediately don't like its rhetoric (the first paragraph basically implies the only reason not to like Bitcoin is sour grapes), but that's not bad writing. The only bad habit I see is the tendency to put a comma-separated clause one or two words into the sentence instead of at the beginning, e.g.: "That, like creating the existing credit-based monetary system, is of course a type of alchemy," but even that isn't a particularly frequent occurrence.
"In fact I assume that better ones will come along and displace this one because that is the way the evolution of everything works—i.e., new ways of doing things and new things always have and always will replace old ways of doing things and old things."
...is not exactly vintage writing!
He didn't waste time and money sending this to some ivy league educated kid for a proofreading session. I've even heard one theory that the higher up in a company you get the shorter emails tend to be, simply because the folks writing those emails don't have time to waste.
In fact the coolest thing about English is just how much flexibility exist in the language, from my studies of Asian languages this just doesn't exist to nearly the same scale.
So far from what I've read, it's extremely well-written; the repetition is to drill in specific points - just take it for that and not be annoyed by it, as it's not done in an annoying way - at least for how far I've read through so far.
It seems humanity is on firesale this days.
